Is Your Personal Credit Affecting Your Business?
If you have always had a perfect personal credit rating, you probably have no reason to think that your personal finances would ever impact your business credit rating. Unfortunately, most people experience occasional credit missteps and dings during their lifetimes that can continue to follow them for years, even impacting their businesses. There are numerous ways that personal credit decisions can cause your business credit to be compromised, leading to higher interest rates, credit denials and even lawsuits.
Personal Credit and Business Credit
Think back to what happened when you applied for your first line of credit when you were still young and unestablished. It is likely that the creditor in question requested a co-signatory, or at the very least asked for additional documentation to verify the information you listed on your application. Creditors are sticklers for the facts, and when it comes to business credit, they are particularly prudent about overall creditworthiness. In fact, most business credit files are established under the good names of their founders. Even if your business has been operating in good standing for years, negative changes in your personal credit rating can impede your business.
Leaving a Trail of Debts
Business lines of credit are often backed by promises from individuals. Any person with a significant role at a company can use his or her personal finances as collateral on a business line of credit, so it isn’t surprising that personal credit health is heavily scrutinised. Any debts that you make on a personal line of credit will be known by your business creditors, so borrow responsibly. If the status of your personal credit rating diminishes, you can expect your business credit rating to go down as well. Small changes to your personal credit rating might not have much of an impact on your business credit lines, but it is best to be prepared for the unknown.
Using Business and Personal Credit Interchangeably
Business owners need to pull and review both their personal and business credit files on a regular basis so that they can stay abreast of any changes or additions that are made. Although it can feel great to know that you have two different types of credit that you can borrow under, you also need to be aware of the fact that you have twice as much responsibility as the average person. If you neglect your business credit rating, you might not feel any backlash business wise, but personal credit is closely factored in when banks look at business credit. Use your personal credit only for accounts that affect you personally, and vice versa with your business credit, to help maintain your ratings accordingly.
There are some business owners who are able to maintain stellar business credit ratings with poor personal credit, but this doesn’t happen often. People and businesses that have good credit usually display similar borrowing habits across the board. Remember to treat your credit, both personal and business, like gold, and you will not face uncertainty the next time that it comes for you to send in a credit application.